Lo anti-spread shield announced Wednesday by the ECBmoreover in rather vague terms, it risks being an illusion. First of all, because any instrument of this type can only be based on net purchases of government bonds, operations that the Eurotower he just interrupted. Secondly, why an anti-spread shield already exists – the Omt program – but it is in fact unusable. This is supported by four economists from the Luiss University (Pierpaolo Benigno, Paolo Canofari, Giovanni Di Bartolomeo and Marcello Messori) in a study carried out for the Economic and Monetary Affairs commission of the European Parliament.
What are OMTs: the “whatever it takes” anti-spread shield
Le Outright Monetary Transactions were launched by the ECB in September 2012, at the peak of the sovereign debt crisis, and since then they have represented a formidable deterrent against speculation, as they allow the central bank to buy the government bonds of countries in difficulty to cool spreads. The key aspect of the program is all in one adjective: "unlimited". Once started, purchases can continue without any maximum threshold established in advance. “Whatever it takes”, at any cost: this was the meaning of the iconic phrase pronounced 10 years ago by Mario Draghi, Eurotower number at the time.
Outright Monetary Transactions: why are they unusable?
The problem is that, to access the OMT programme, countries must commit to Brussels a settle accounts and to respect a structural reform plan. So far no one has ever taken this step: the program was not activated in 2012 because the announcement effect alone was enough to put out the fire on the markets and was no longer needed afterwards. Now the temperature on spreads has risen but, barring an impending bankruptcy, it is easy to predict that no government will ever accept the conditions related to the OMTs.
The limits of monetary policy
For this reason, according to the Luiss economists, at the moment monetary policy can do little both to contain differentials and to curb inflation, if not at the price of a tightening that would trigger yet another recession (the fifth since 2008 for the Eurozone, the sixth for Italy).
The road to a centralized fiscal policy in Europe
Scholars therefore propose a different path: a fiscal policy centralized at the European level that gradually strengthens. In order not to violate the treaties, this policy would necessarily have to be temporary, and yet its reactivation would be conceivable. Something similar to what has already been experienced with the Recovery Fund.
“There seem to be no other options – reads the study – than resorting to a centralized fiscal policy that deals with the solvency/illiquidity problems of sovereign debts, unless you accept” the risk that the fiscal authorities steer monetary policy, with potential “long-term unintended consequences on the objective of price stability”.
